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The group of companies for the purposes of fiscal consolidation is formed by a dominant company and another or more dependent companies. The dominant Company may take the legal form of a Public Limited Company, Limited and Limited partnership and may also be a permanent establishment for a company resident in a state with a Double Taxation Treaty with a clause for the exchange of information. The dominant company must be resident in Spain and hold, directly or indirectly, at least 75% of the share capital in the dependent ones. This percentage must be held throughout the whole tax period.
The dominant company cannot be dependent on another resident company that meets the requirements in order to be deemed to be a dominant company. Neither may it be included in the systems for temporary joint ventures, holding companies, or in those called economic interest groups. The dependent companies or subsidiaries must have the status of entities resident in Spain and not be exempt, subject to a different rate of taxation or be in a situation of bankruptcy proceedings.
The dominant company must inform the Administration about the Group’s agreement to pay tax under the fiscal system of consolidation before the tax period starts in which this fiscal system is to be applied, as well as identifying annually the companies that have been included or have been excluded from the group.
The decision for consolidation must be approved by the AGM of each one of the companies, both for the dominant company and the dominated ones, within the preceding financial year. All the companies in the group must have the same date for the closure of the financial year.
The option for fiscal consolidation shall be applicable for the successive financial years and indefinitely, unless a waiver thereto is submitted within a maximum time limit of two months from the end of the last period to which it may be applicable, or when incurring any of the causes for exclusion from this system.
In this system, tax is paid for the sum of the individual basic taxable charges less the eliminations for the operations performed between the companies in the group and adding the incorporations when the results eliminated are earned from third parties. As a result of the application of this system, there is no need to make any retention on the dividends shared out, interest payments and other yields paid out between the companies in the group. In any event, there are indirect taxes on the transactions between the companies that are consolidated.
The losses generated prior to the consolidation, by any of the companies in the group, may be compensated by the profits obtained by the group, with the limit of the basic taxable amount for that company. According to the same criterion, the group’s losses may be transferred to the companies that form it when they are no longer in the group, in the proportion that they might have contributed to its formation.
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